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APPROPRIATION COMMITTEE-2.020 ATM 25 March 2020 Article 14 Appropriate for Wastewater System Improvements Funds Requested Funding Source Committee Recommendation $1,301,200 Wastewater EF Debt $100,000 Wastewater EF Rates Approve (8-0) $1,401,200 This article addresses proposed capital expenditures to be made during FY2021 as part of a continuing program to upgrade and keep current the assets of the Wastewater Enterprise Fund, including both sewer mains and pumping stations. For general background on the enterprise funds, and the relationship between the budget process and the water rate-setting process, please see Appendix B and the discussion under Article 5. Work to Be Done and Funding A total of$1,401,420 is requested this year. $1,000,000 is requested as part of an ongoing,multi-year plan, to investigate the condition of and rehabilitate sanitary sewer infrastructure in order to improve the system's operation, reduce backups and potential overflows, prevent malfunctions, and reduce infiltration, thereby lowering measured flows through the MWRA meter. Another$401,420 is requested as part of an ongoing program to upgrade Lexington's ten sewer pumping stations. The details of both programs, including the expected work sites can be found in the Brown Book, p. XI-9. Capital appropriations for similar purposes have been made in most years(except for FY2006,when engineering studies were not ready, and FY2011, when only pump station upgrades were performed). In a break from recent practice, as in the case of the Water Enterprise Fund, it is proposed that this year's maintenance and upgrade work be funded not exclusively with debt, but with a combination of debt ($900,000) and cash capital raised in the rates ($100,000). Given that this work is expected to continue at essentially the same level indefinitely, the goal is gradually to transition the funding of this program to a cash capital basis, thereby avoiding interest costs. To mitigate pressure on wastewater rates in the short term,the changeover would be phased in over ten years. See Brown Book, p. XI-9. The pump station up- grade program, whose projects occur more sporadically (see 5-year capital plan, Brown Book, p. XI-21), would continue to be funded with debt. Rate implications The history of funding practices for the wastewater fund is similar to that for the water fund.See discussion of Article 13 above.Prior to FY2006,capital expenditures for wastewater distribution system improvements were funded primarily by enterprise fund cash capital, which was raised in the rates. Subsequently, there was a transition to funding these ongoing improvements primarily with debt. While that change mitigated the need for rate increases early on, it effectively pushed much of the burden of the program off to future ratepayers, steadily increasing the annual debt-service costs of the wastewater fund,both in dollar and per- centage terms. The proposal now to transition from exclusive debt funding back to cash capital will, conversely, increase the burden on current ratepayers somewhat, at least in the short run. This is because, until that transition has been completed,the rates will have to support not only continuing debt service for past expenditures, but also the cash capital portion of current expenditures.However,because the level of annual expenditures for wastewater system maintenance is relatively small—less than half that for water system maintenance— and has been level-funded over many years, there should be little or no rate impact from growing debt 36